COST BITES 47: PROVING (OR DISPROVING) THAT THERE WAS A VALID RETAINER: APPORTIONING RECOVERABLE COSTS BETWEEN TWO DEFENDANTS

In  Reed v Woodward Property Developments Ltd & Anor [2023] EWHC 36 (SCCO) Costs Judge Leonard considered a number of issues.  Firstly the court’s approach when there was a dispute as to whether there was a valid retainer. Secondly questions as to the appropriate means of assessing a bill where there were two defendants but a costs order had only been made in favour of one of those defendants.   (A later post will deal with other aspects of this case).  The judge found that the claimant had failed to displace an assumption that there was a valid retainer in place.  However the receiving defendant’s argument as to recoverable costs was not accepted.   The next part of the assessment is likely to lead to heavily nuanced argument.

THE CASE

The claimant issued proceedings against a limited company and a director of that company personally.  The claim related to defective building works and the dumping of material on the claimant’s land. His claim against the second defendant was based on the proposition that the second defendant had accepted personal responsibility for the building works carried out by the first defendant.

The first defendant went into liquidation and took no part in the trial.  A trial was held as to whether the second defendant had any liability to the claimant.  The claimant was unsuccessful and he was ordered to pay the second defendant’s costs.  The judge found that the second defendant had acted in his capacity as director of the first defendant and not accepted any personal responsibility, nor was he personally liable for dumping of materials on the claimant’s land.

THE ASSESSMENT OF COSTS: THE RETAINER

The claimant disputed liability to pay the second defendant’s costs on the basis that there was no valid retainer between the solicitors and the second defendant. The solicitors had initially acted for the first defendant and questions were raised in relation to the nature of the retainer.

1. 1. Before explaining my conclusions in relation to the retainer challenge, I should refer to some established principles. The first, which is not in dispute, is the indemnity principle, which provides that the Claimant, under the orders for costs made in the Second Defendant’s favour, has to indemnify the Second Defendant only for costs liabilities that he has actually incurred. The Claimant argues that because there is no valid retainer between the Second Defendant and DAS, there is nothing for him to indemnify.

1. 1. The second principle is that where, as here, a Receiving Party’s bill of costs bears the certificate of a solicitor to the effect that the indemnity principle has not been breached, the Court can (and should unless there is evidence to the contrary) assume that his signature to the bill of costs shows that the indemnity principle has not been offended: Bailey v IBC Vehicles Ltd [1998] 3 All ER 570. In practice this means that there must be some real reason to doubt the accuracy of the certificate in the bill. Speculative challenges should not be entertained.

1. 1. The third principle, recently articulated in the judgment of Lang DBE J in Fladgate LLP v Harrison [2012] EWHC 67 (QB) (at paragraph 39) is that (with the exception of certain types of agreement governed by statute, such as CFAs) it is not necessary for a contract of retainer between a solicitor and a client to be in writing. It may be oral, or implied by the conduct of the parties.

1. 1. The fourth principle (referred to again in Bailey v IBC Vehicles Ltd) is that the fact that litigation costs are funded by an insurer (or another third party such as a trade union or litigation funder) has no bearing on that party’s right to recover costs except in the event that there is a specific agreement to the effect that the funded party has no personal liability for the costs. Such arrangements must, by definition, be rare; I myself have never come across one.

1. 1. In the course of the hearing we discussed the procedure under Practice Direction 47 paragraph 13.13, which provides that the court may direct the receiving party to produce any document which in the opinion of the court is necessary to enable it to reach its decision. These documents will in the first instance be produced to the court, but the court may ask the receiving party to elect whether to disclose the particular document to the paying party in order to rely on the contents of the document, or whether to decline disclosure and instead rely on other evidence. The receiving party will not be put to an election if the exercise would be disproportionate (as, for example, in those cases where a litigant in person demands sight of an opposing solicitor’s entire file).

1. 1. In effect the Second Defendant has already elected to rely upon the witness evidence of the Second Defendant and Ms Rogers. That evidence is wholly unremarkable. DAS has been conducting the Second Defendant’s defence for several years, undertaking for example the preparation of his defence and his witness evidence. It is innately highly unlikely that DAS could have done so without his knowledge and authority and his witness evidence confirms, as one would expect, that there was such knowledge and authority. For the period before any CFA was entered into, that is all that is really needed to establish the existence of a contract of retainer.

1. 1. It is not at all clear to me that, at least until the withdrawal of LEI cover, a separate written retainer was ever addressed directly to the Second Defendant for the pre-CFA period, but to my mind that is of little or no significance. At the very least, as a director of the First Defendant the Second Defendant would be expected to have been on notice of the terms upon which DAS were prepared to act, and he says plainly that he was.

1. 1. Turning to the points raised by the Claimant, I shall start with the pre-CFA period. The evidence of Ms Rogers is that DAS started to act for the Second Defendant on 15 August 2016, and that there was a 4-day period between 26 August and 30 August 2016 that it ceased to act because of concerns about a potential conflict of interest. Hugh James was, accordingly, briefly instructed by the Second Defendant between 26 September and 3 October, when he disinstructed them, having returned to DAS. I should say that (although the Second Defendant has not relied upon them) this is entirely supported by the papers filed in support of the Second Defendant’s Bill of Costs.

1. 1. The synopsis in the Second Defendant’s bill of costs does not, as the Claimant asserts, state that DAS took over the case on 18 August 2016. It says only that they sent their first letter to the Claimant’s solicitors on that date. The letter itself, as the Claimant says, did not mention the Second Defendant (perhaps because the information sought in that letter related to the claim against the First Defendant) although judging from the fact that within about two weeks of that date, DAS was asked to and did confirm that it had instructions to accept service on behalf of both defendants, the Claimant’s solicitor seems to have understood the true position. It is in any event perfectly clear on the evidence that DAS was acting for the Second Defendant at that time.

1. 1. DAS’s email of 28 September 2016 was sent during the brief period over which it was thought that the Defendants would have to be separately represented, and DAS indicated at that point that Hugh James would be serving the Second Defendant’s defence. That however was resolved by 30 September, when DAS established to its own satisfaction that there was no conflict of interest and on the same date prepared, filed and served upon the Claimant’s solicitor the Second Defendant’s defence. If the Claimant’s solicitor was confused by that, it cannot have been for very long: he served the Claimant’s reply to the defence of the Second Defendant upon DAS on 17 October.

1. 1. As for the period after LEI was withdrawn and the Claimant’s claim against the Second Defendant restored, the evidence of Ms Rogers is that it took some time for the Second Defendant and DAS to resolve the basis upon which DAS could continue to represent him, and they finally settled upon a conditional fee arrangement. It seems to have taken them some time to work their arrangements out, but there is no good reason to doubt what she says.

1. 1. In short, there is no good reason for querying the certification of the bill in relation to the pre-CFA period, nor any good reason to doubt the evidence relied upon by the Second Defendant in that respect.

1. 1. I turn to the Claimant’s challenges to the validity of the Second Defendant’s CFAs. Some of them are based upon the misapprehension that the synopsis in the Second Defendant’s bill of costs states in its synopsis that the first CFA entered into between the Second Defendant and DAS was dated 1 October 2018. In fact (again) the synopsis does not say that: it says only that the first CFA covers costs incurred from that date, which is consistent with the evidence offered by Ms Rogers.

1. 1. This leaves the allegedly misleading statement made to HHJ Ambrose about the funding of the Second Defendant’s defence; Mr Brewin’s email of 19 March 2021; and the incorrect date of 17 March 2019 given in the Second Defendant’s Replies to the Points Dispute for the second CFA.

1. 1. Before addressing those points I should mention an assertion made by the Claimant in the course of the hearing to the effect that the Second Defendant is the joint owner of a valuable property (he also made reference to expensive cars driven by the Second Defendant, but that is entirely unsupported by evidence and would mean very little even if it was). This was advanced by way of a challenge to the Second Defendant’s evidence that, following withdrawal of insurance cover and the restoration of the claim against him, he was concerned that he could not meet the continuing costs of the litigation and was actually contemplating bankruptcy: the CFA was the solution to this problem.

1. 1. Judging from the correspondence between the parties filed for the hearing, the property referred to seems to have been the Second Defendant’s home, jointly owned with his wife. I have seen no evidence of the actual extent of his share in the property, but given that it was his home and assuming he had an interest in it of real value, the only ways of using it to fund litigation would appear to have been to borrow against it (if affordable) or sell it.

1. 1. I can see that bankruptcy might well, for the Second Defendant, have seemed a viable alternative to selling his and his wife’s home to fund his continuing defence, or for that matter to requiring his wife (as would have been necessary) to make her share in the property subject to a loan offered for that purpose. The Second Defendant’s evidence in relation to his ability to fund the continuing litigation seems to me to be perfectly credible.

1. 1. Turning to the proceedings before HHJ Ambrose, as I have not seen a transcript I do not know exactly what was said. Assuming that the position was indeed put to HHJ Ambrose in the way that the Claimant says, then clearly that was inaccurate. That however is really as much as one can say, and I have seen nothing to suggest that the point was of any material importance.

1. 1. Mr Brewin’s email of 19 March 2021 appears to have been sent to the Second Defendant’s Counsel and copied to the Second Defendant’s solicitor. It appears to have been sent in the course of negotiations concerning the percentage that might be conceded by the Second Defendant in recovering his costs of the Claimant’s unsuccessful appeal (ultimately agreed at 15%). The pertinent wording is, I believe, “I’m not averse to agreeing a percentage, with the final amount to be assessed on the standard basis, especially if that makes it more likely we will get some costs sooner.”

1. 1. I am afraid that I find it quite impossible to understand why this phrase should be considered to be inconsistent with the existence of a CFA. Mr Brewin seems to be hoping, in quite general terms, for the early recovery of costs from the Claimant, which is consistent not only with his duty to the Second Defendant but with the likelihood, under the CFA, that DAS would be dependent for payment of all or part of its fees upon recovery of costs from the Claimant.

1. 1. The date given for the second CFA in the Second Defendant’s Replies is evidently an error, either typographical or editorial. I have seen many of those and I will, I am sure, see many more. It seems to me to be of no significance whatsoever.

1. 1. In summary, on the strength of (i) what was allegedly said to HHJ Ambrose QC; (ii) a misreading of the synopsis in the Second Defendant’s bill of costs; (iii) Mr Brewin’s broad reference In March 2021 to the desirability of recovering costs from the Claimant sooner rather than later; (iv) an error in the Second Defendant’s Replies; (v) the wholly speculative and frankly unlikely proposition that DAS and the Second Defendant might, after the claim against him was restored, have entered into an agreement that DAS would continue to represent the Second Defendant without charge; and (vi) the Claimant’s dubious interpretation of very limited evidence concerning the Second Defendant’s means, I am invited not just to query the certification of the Second Defendant’s bills of costs, but to entertain the suspicion that the CFAs between the Second Defendant and DAS are forgeries, concocted after the event in order to recover costs unlawfully, and that Ms Rogers has, inadvertently or otherwise, given false evidence.

1. 1. There is nothing in the evidence that comes close to justifying any of that. I appreciate that there may be reasons to treat the evidence of the Second Defendant with some caution, given the findings of HHJ Ambrose, but as I have already observed his evidence is precisely what one would expect. I have seen nothing to cast doubt on the accuracy of Ms Rogers’ evidence.

1. 1. Although it is not strictly necessary, I should address the proposition that the CFAs between the Second Defendant and DAS cannot have had retrospective effect unless there was already in place a valid contract of retainer. In my view, neither Radford v Frade nor Pentecost v John furnish authority for such a proposition. In my view, the position, as explained in the judgment of Mr Justice Turner in Pentecost v John, seems to me to be precisely the opposite.

1. 1. Forde v Birmingham City Council [2009] 1 WLR 2732 established that there is no prohibition on retrospective CFAs. As for the proposition that there must be a valid contract of retainer in place for a CFA to have retrospective effect, the position is summarised in the passages from Northern and Shell Plc v John Laing Construction Ltd [2002] EWHC 2258 (TCC) quoted by Turner J:

“The parties’ intention that a contract or deed is to have retrospective effect is more readily to be seen where the parties had a prior contractual relationship preceding the contract… in question but it is still possible for such retrospective effect to occur where no such prior contractual relationship was in existence where such is provided for by the clear words of the contract or deed”.

1. 1. For all the above reasons, my conclusion is that there is no good reason to look behind the certification of the bill of costs, no good reason to query the evidence proffered on behalf of the Second Defendant as to the nature, from time to time, of his retainer arrangements with DAS, and no good reason to query the validity of those arrangements.

THE DIVISION OF COSTS

A separate, but related, issue was how the costs should be divided between the two defendants.   Only one had an order for costs, but work had been done on behalf of both.  On assessment what should happen about the “overlap”.

Division of Costs

1. 1. Again, before explaining my conclusions, I should refer to established principles. Perhaps the most helpful authority to which I have been referred is the judgment of Mr Justice Jay in Haynes v Department for Business Innovation and Skills [2014] EWHC 643 (QB), which drew upon the judgment of Mr Justice Patten (as he then was) in Dyson Technology Ltd v Strutt [2007] EWHC 1756 (Ch).

1. 1. Haynes concerned a claim by the widow of a Mr Haynes, who had died of lung cancer occasioned by exposure to asbestos. Mr Haynes had been employed by ten employers, and proceedings were issued against all of them. The claimant subsequently accepted a Part 36 offer from one of the Defendants and abandoned the claim against the other nine.

1. 1. On the assessment of the claimant’s costs, a Costs Judge assessed the amount due to the claimant as a fraction of her total costs against all ten defendants. Jay J found that this was wrong in principle.

1. 1. The common or generic costs of the case, he found, effectively fell into two categories. First, there were non-specific costs such as court fees, medical reports and travel expenses which would have been incurred in any event, regardless of the number of other defendants. Those were recoverable in full against the DBIS.

1. 1. Secondly, there were specific common costs which were, in principle, capable of identification and division: for example, a conference with Counsel concerning the liability of all ten defendants. Specific common costs fell to be divided. In undertaking that division the general rule is that evidence-based decisions are required, rather than an approach which simply identifies the number of defendants. This general rule must however yield in circumstances where it would be disproportionate to conduct a more punctilious exercise. In the circumstances of that particular case (the claimant having failed to file any papers in support of her bill) a more broad-brush approach was justified.

1. 1. Dyson concerned proceedings for injunctive relief, based upon two clauses in a contract of employment between the claimant and the defendant. The claimant relied upon two provisions in the contract, referred to as clauses 18 and 19.1, but abandoned the clause 18 claim during the trial.

1. 1. The Defendant was ordered to pay the Claimant’s costs of the proceedings, with three exceptions. These were the cost of expert evidence, as to which no order for costs was made; of the costs of the clause 18 claim; and the costs of an application to amend the Claimant’s particulars of claim. In respect of those last two categories, the Claimant was to pay the Defendant’s costs.

1. 1. Applying the same principles as did Jay J in Haynes, Patton J found that “non-specific costs such as travelling expenses which are general to the action in the sense that they do not relate to the handling of any particular issue and would have been incurred whatever issues were involved” should be recovered in full and “specific common costs… which relate to work done on more than one issue in the case, but which are not separated for the purposes of charging out time or as disbursements” fell to be divided. Notably he found that “the identification of the fees or charges for time spent in relation to work on the cl. 18 claim excludes work that would have had to be done anyway because it also relates to the cl. 19.1 claim.” I understand that the Second Defendant relies in particular upon Dyson v Strutt.

1. 1. The Second Defendant’s bill has been prepared on the basis that all costs solely attributable to the First Defendant’s case (with one erroneous exception, which has been conceded) must be excluded, but that there is no proper ground for dividing non-specific common costs during the period that DAS was acting for both Defendants. That is because the Claimant’s case was that the Second Defendant was personally responsible for all the acts and omissions of the First Defendant it follows, says the Second Defendant, the case against the First Defendant was also the case against the Second Defendant.

1. 1. In support of this argument I have been referred to the pleadings; to the parties’ written submissions for the trial before HHJ Ambrose; to the evidence given by the Claimant’s solicitor resisting the application for a trial of limited issues, emphasising as it did the importance of the allegations against the First Defendant in helping to establish the Claimant’s case against the Second Defendant as to credibility and alleged dishonesty; and to correspondence between the parties in which the Claimant’s solicitor indicated that he intended to rely upon every part of this evidence, for much the same reason.

1. 1. I do not think that the Second Defendant’s approach can be right, and I do not regard it as supported either by Dyson v Strutt or by Haynes, for these reasons.

1. 1. The Claimant’s case against the First Defendant was that the building works undertaken by the First Defendant were defective. The Claimant’s case against the Second Defendant was first that he had taken on personal responsibility for the quality of work performed by the First Defendant, and had negligently failed to ensure that it was carried out to the required standard; second that he had negligently misrepresented the quality of the work to be expected from the First Defendant; and third that he was personally responsible for the unauthorised dumping of waste on the Claimant’s property.

1. 1. I appreciate that those were closely linked cases, not least because the Claimant alleged that the Second Defendant offered to undertake personal responsibility for the standard of works precisely so that he could avoid the appointment of an independent project manager and so enable the First Defendant to cut corners and perform substandard work.

1. 1. They are, nonetheless, two quite distinct cases against two quite distinct defendants. It is quite right that the Claimant’s case against the Second Defendant depended heavily upon his case against the First Defendant, if only because he could not have been liable for any failure adequately to supervise building works that were in fact adequately performed, but that cannot merge two separate cases against two separate defendants into one case against both.

1. 1. To put the matter in perspective one only has to consider the position if, as seemed possible between 26 and 30 September 2016, the First Defendant and the Second Defendant had been separately represented throughout these proceedings. Whatever the outcome of the proceedings, there would have been no question of the Second Defendant recovering from the Claimant any part of the costs incurred by the First Defendant. He would only have been entitled to recover costs connected with the case against the First Defendant to the extent that it was reasonable for him, in preparing his own case, to incur such costs. The position can be no different simply because there was a period when the two defendants were not separately represented.

1. 1. The reality of the position is, to my mind, illustrated by the documents that have been filed by the Second Defendant in support of his bill of costs. In the Second Defendant’s defence, allegations against the First Defendant are neither admitted nor denied; they are matters for the First Defendant. His witness evidence , similarly, leaves the question of the standard of building works to the experts.

1. 1. A witness statement of Ms Rogers dated 18 November 2019 and filed in support of the application for a trial of limited issues, states without qualification (paragraph 5) that:

“The expert evidence and a large proportion of the witness evidence relates to the claim against the First Defendant, which will only be relevant against the Second Defendant if he is found to have personally owed the Claimant a duty of care in Tort”.

1. 1. She goes on to explain (paragraph 12) that:

“The First Defendant is in liquidation and the liquidators have not actively participated in the litigation. The Second Defendant has an interest in the First Defendant succeeding in its defence, which is why the Second Defendant instructed the Defendants’ expert to prepare a joint statement of issues with the Claimant’s expert.”

1. 1. All this to my mind is perfectly clear and sensible, but it is quite inconsistent with the approach taken to the preparation of the Second Defendant’s bill. Examples are as follows.

1. 1. Mr Graeme Sampson of counsel gave written advice on the merits of the case against both defendants on 15 September 2016 (this is the advice erroneously described by the Claimant as having been given at a time when DAS was not acting for the Second Defendant). 75% of his full fee is included in the Second Defendant’s bill of costs. That is not a sustainable claim. Even a brief review of the advice demonstrates that this item of costs is plainly a divisible one. Separate consideration is given, as one would expect, to the merits of the case against each of the defendants, and it is this advice in which the possibility of a conflict of interest is first raised.

1. 1. The same applies to the brief fee of Mr Whitehouse for representing both Defendants at the CCMC on 11 July 2017, which is claimed (after separating out the cost of an application) at 75% of the total. This item falls to be divided between the two defendants.

1. 1. Similarly, all three of the fees rendered by Mr North, a chartered building surveyor, on 24 October 2017, 4 December 2017 and 27 June 2019 have been claimed by the Second Defendant at 75% of the total, notwithstanding that, as Ms Rogers put it in her witness statement of 18 November 2019, they clearly related to the claim against the First Defendant.

1. 1. Although I can accept that his third fee was incurred by the Second Defendant alone, on the basis that it would strengthen his case, I struggle to see any basis upon which the Second Defendant can properly claim any of the cost of Mr North’s first two reports.

1. 1. There are other examples: in addition to those mentioned above the Claimant has put a good deal of emphasis upon disclosure, for which (according to my spreadsheet bill) some 16.7 hours have been claimed, notwithstanding that the case against the Second Defendant rested entirely upon alleged verbal representations and agreements.

1. 1. In summary, it is not open to the Second Defendant, for the period when DAS were acting for both defendants, to treat as indivisible all costs not exclusively incurred on behalf of the First Defendant. The majority of those costs will be divisible, and it will be necessary to consider how the items of work performed by DAS up to 15 June 2018, when DAS was advised of the fact that the First Defendant had gone into liquidation, should be divided. Whilst the detail has yet to be addressed, it seems likely that there will be substantial reductions to that part of the bill.

1. After that point, it will still be open to the Claimant to argue that costs were incurred unreasonably because they really pertained to the claim against the First Defendant, but as DAS (even before its removal from the record) received no further instructions from the First Defendant, it seems to me that there can be no question of division.